Question: In a second-price auction, a single object is being auctioned off; each bidder writes down secretly his bid (in dollar values) and submits it in

In a second-price auction, a single object is being auctioned off; each bidder writes down secretly his bid (in dollar values) and submits it in a sealed envelope; the auctioneer sells the object to the bidder who bids the highest (with ties broken by a fair coin toss) at the price equal to the highest bid among all the other bidders. Suppose that the object being auctioned off is the dollar bill.

a. Why is submitting $1.40 weakly dominated by submitting $1.00?

b. Why is submitting $0.99 weakly dominated?

c. Find a dominant-strategy equilibrium of the game.

Hint: As far as a bidder concerns, no matter how complicated the strategies played by the other bidders are, it suffices to consider the highest bid among one's rivals.

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